John,
This is pretty much true of credit cards as well. You're right I deal with developers who for the most part are honest and so fraudulent operations are very rare. However, I do see them and when it happens it doesn't matter much whether it's through CC or Paypal. The customer almost always wins... even if there's clear evidence to the contrary. Trying to get a customer chargeback reversed is near impossible unless you have a physical signature on file, which with electronic delivery is not the case for example.
As a merchant you always take a risk once you send somebody anything and you are at a distinct disadvantage. CC companies make their main money of consumers spending with their cards so they rather keep customers happy than worrying about small merchants...
As with anything the key is to make sure up front that you're dealing with a valid buyer. Most people are legit and few will cheat you if they are using their legit credentials. The biggest things to worry about is fraudulent/stolen identity type charges - and those can frequently be detected by closely reviewing transactions...
+++ Rick ---
>Mike, re Paypal: take a *very* careful look at their Seller Protection Policy (SPP.) Intangible goods (e.g. e-mailed product) are specifically excluded, meaning you have no protection if a buyer decides they want their money back. Also, goods < $250 need online Delivery Confirmation and goods >$250 need "signature required" postage as well, or you're not covered. Also check our international coverage: if you're planning to send outside North America and the UK, you're not covered by the SPP.
>
>It depends on the sort of customer you're expecting. I don't know how many Paypal claims Rick Strahl has faced- perhaps not very many, bearing in mind his target market of professional developers- but if you're going to take Paypal, you need to know... if in doubt, choose "community" at the Ebay website, navigate to the Paypal Discussion Board and ask the question.